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Three Reasons Why Polkadot May Be Moving Higher

The price of the Polkadot (CCC:DOT-USD) token has been nearly cut in half since the beginning of November. This has been part of a broad sell-off in cryptocurrencies fueled by profit taking and a shift toward risk-off assets.  

Polkadot altcoin logo on pink background

Source: shutterstock.com/nurionstd

But this isn’t the first significant dip that the token experienced. In July 2021, the token dropped below $11. However, in that case, investors were rewarded as the DOT token price soared to $55 before this recent sell-off.  

My general belief is that, over time, Polkadot will be one of the winners to emerge as the cryptocurrency market continues to evolve and mature. However, with macroeconomic policy becoming more hawkish over the coming months, the sell-off may not be over quite yet. In this article, I’ll look at three reasons why I believe DOT remains worthy of your consideration.

A Viable Alternative to Ethereum Supremacy 

Polkadot wasn’t the first to tout itself as an Ethereum (CCC:ETH-USD) killer. And the secret ingredient behind Polkadot is the use of parachains. These are user-created blockchains that connect with Polkadot’s central blockchain. The Polkadot framework allows parachains to interconnect even when performing different functions.  

One issue that parachains solve is facilitating cross-chain transfer of any data or digital asset. Essentially, they allow different coins and tokens to communicate with each other. In addition to solving that problem, parachains also create real-world utility in a different way. For example, smart contracts created on the Ethereum blockchain can interact with a parachain that is geared toward a different kind of information. And the transactions can be processed in parallel. This kind of utility is causing some to say that Polkadot is creating the internet for blockchains.  

A Significant Market Cap 

I am not sure if market capitalization will be a significant factor in determining the value of a cryptocurrency. However, for now, it’s one way that crypto owners tend to keep score when looking for a way to determine the size of a particular type of cryptocurrency.   

In the cryptocurrency world, market capitalization is calculated by multiplying a token or coin’s current price by its circulating supply. This is when it’s important to remember that the cryptocurrency market is completely decentralized. That means the supply of coins in the market is controlled by the community. Therefore, when a crypto has a higher market cap, it can be seen as a good indicator of the crypto’s overall presence in the market.  

With that said, DOT is hovering around the top 10 in terms of market cap.  

Polkadot May Be More Attractive as Risk Re-Enters the Crypto Space 

It was a little easier to understand skepticism around the DOT token before the launch of Polkadot’s parachains. After all, many cryptos have suffered from the weight of elevated expectations. But with the parachains now active, the year-end sell-off seems to be more about profit-taking and/or investors moving to more risk-off assets.  

That flight to risk-off assets has continued in the first part of January. However, from a technical view, it does appear that the DOT token is finding support. If that’s the case, I suspect that the recovery in the DOT token since Jan. 10 may be only the beginning of a larger move higher. 

What to do With Polkadot

One of the primary reasons for any lingering skepticism I have about cryptocurrency is that investors haven’t seen what will happen to the various tokens and altcoins in a bear market. It’s too early to tell whether we’re heading towards one.  

That is my main note of caution other than to remind you that investing in cryptocurrencies conveys a healthy amount of risk. Nevertheless, if you liked Polkadot before, there’s no reason to not like it now. The real question for crypto investors seems to be how high can the DOT token go? 

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.  

Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019. 

Article printed from InvestorPlace Media, https://investorplace.com/2022/01/three-reasons-polkadot-may-move-higher/.

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